July 23, 2017

IPP: Responding to Africa’s power generation needs

By Ahmed Jaffer, chairman of the KPMG board, and Head of Power and Utilities at KPMG SA

It is well documented that Africa is faced with a significant shortage of power generation capacity with more than 60% of its population not having access to electricity. The continent is home to many of the fastest growing economies  yet this growth remains constrained due to a lack of growth in the power generation infrastructure. Our challenge is to appropriately respond to the power generation need of the continent by providing reliable and affordable electricity to all African’s while remaining cognisant of the requirements of investors to facilitate investment into the industry.

The current energy access dilemma can largely be attributed to a lack of infrastructure investment, which is a cornerstone for a growing economy. Many believe that the infrastructure investments that are required to address the generation capacity shortfall of the continent are inhibited by capital sourcing constraints, concerns over policy security and an unpredictable political climate.

In South Africa the need to improve the energy mix within the country has come to the forefront with the Government realisation that alternative energy solutions offer an immediate response to the power generation shortfall. The success of the Renewable Independent Power Producer Procurement Programme (REIPPPP) is evident in South Africa and showcases the private sector’s willingness to invest in a power sector that displays the following key characteristics:

  • regulatory and policy certainty, backed by a political will;
  • transparent and well–designed procurement processes;
  • transactions that provide reasonable levels of returns (IRR); and
  • secured off-take that is backed by government guarantees.

Many believe that the IPP program that has been so successful in South Africa can provide an ideal blue print for addressing the challenges that inhibit investment so desperately needed within the energy sector across Africa.

There is no doubt that the energy landscape within the continent and specifically South Africa is undergoing a period of unprecedented change. Market observers agree that the industry will look fundamentally different within the next few years and the role of the traditional vertically integrated state owned utility,  will need to change. Understanding these changes and the challenges that they bring requires a partnership that can provide the right multi-disciplinary team with an integrated approach to the sector, with global credentials and local relevance to assist clients in this exciting journey.

The changes that are on the horizon brings with it the exciting opportunity for us to contribute to the future landscape of this fascinating industry.

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